Jackson Jambalaya

The Clarion-Ledger published on the front page today a big story on foreclosures in Mississippi by Chris Joyner. It was a worthy attempt at serious journalism but fell short on several points. The article begins with the mandatory mentioning of a true hard-luck story that tugs at your emotions. http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20080229/NEWS/802290358&referrer=FRONTPAGECAROUSEL

Jackson resident Melody Weathersby was one day removed from a hospital stay for congestive heart failure when she got word her house was due to be sold at auction.

It was the latest and most severe in a series of problems with Weathersby's adjustable rate mortgage. "I tried to negotiate, but they wouldn't," she said. "They wouldn't help."..

However, some details about her mortgage emerge later in the story:

"Weathersby, 45, is medically disabled and her fixed income brings in about $1,200 a month. In 2004, she put down $1,000 on a modest, ranch-style house in south Jackson just south of McDowell Road. Her $55,000 mortgage came with an initial payment of $466 a month and was financed by Southstar Lending, a Florida-based firm that specialized in subprime loans.

Beginning in 2005, the interest rate on Weathersby's mortgage adjusted several times. By last spring, the monthly payment on her house had ballooned to $1,300, and she was thousands of dollars behind in payments.
"I didn't know it was going to keep going up when I got it," she said. "It seemed like an oversight because I really didn't know that's what I had. I thought I had a fixed interest rate."

Southstar, which filed for bankruptcy last year, sold the mortgage to Homecomings, a division of GMAC. Weathersby worked with the Neighborhood Assistance Corp. of America, a nonprofit advocate for homeowners, in an attempt to renegotiate her mortgage, to no avail...."

There are several questions in regards to this mortgage.

1. What is the interest rate on this mortgage? Why didn't Mr. Joyner report what her initial and current initial rates were? This is called basic fact-checking. Here is what the reporter SHOULD have obtained: the HUD-1 settlement statement, the Deed of Trust, and the ARM Disclosure which would have been in her closing package.

Even if he didn't have access to these documents, which he should have obtained if writing a story about her dilemma, he should have at least used an online mortgage calculator as I have done. At 7.00%, her payments would have been $359 a month based on a loan amount of $54,000 and a loan term of 30 years. Since she claimed her payment was $446 per month, the interest rate of 9.25% shows a payment of $443 per month. The story did not mention if taxes and insurance were included so it is not clear as to whether the payment included them. If it did, then the principal and interest payment was probably $150-200 less. However, since Mr. Joyner did not report such basic information in his story, I am forced to rely on guesswork in determining the terms of Ms. Weathersby's mortgage.

One CAN state with certainty Ms. Weathersby's payments are NOT $1300 per month based on a $54,000 principal as her interest rate would have to be 29% which is illegal and not done by any mortgage lender. Every ARM has a lifetime cap on how much the rate can increase and there are no ARM's that have 20 point lifetime caps. What is clear is that there are other reasons why Ms. Weathersby is facing a $1300 per month payment as Mr. Joyner neglected to mention any documents supporting this amount. Late payment and other fees may cause the payments to sharply increase but it is impossible payments for her original loan increased so much just because the interest rate alone changed. .

2. Did Ms. Weathersby read her ARM disclosures? Federal law (RESPA, TILA, Regulation Z, etc) requires the lender or mortgage company to have the borrower sign an ARM disclosure within three days after making loan application and another one at closing that states it is an ARM and what the terms are. This is not fine print in a contract buried on page 20 but a one page form with the terms clearly spelled out at the top of the page. The lender is also required to give the borrower an ARM booklet that discusses the pros and cons of using an ARM. As Mr. Joyner failed to report this basic feature of the mortgage industry (and any mortgage professional could have provided him with a copy) one must assume that she did sign an ARM disclosure as the loan could not have been closed without it.

Unfortunately, "Weathersby worked with the Neighborhood Assistance Corp. of America, a nonprofit advocate for homeowners, in an attempt to renegotiate her mortgage, to no avail. "Her house was unaffordable when she went into the loan ... based on her fixed income," said NACA representative Latyrish Gee...". 

So if the loan was unaffordable to begin with, why should Ms. Weathersby be given the house? In fact, the next question is how did she obtain the mortgage in the first place?

As for her income, it is important to note some lenders also "gross-up" retirement and disability income that is tax-free as 125% of its monthly payment as there are no taxes. Ms. Weathersby probably was given credit by the lender for having fixed income of $1,500 per month, not the actual $1,200 per month figure. This would have allowed her to buy a home on her fixed income when in reality, she probably could not afford it.

It is also important to remember that her mortgage, which is not specified by Mr. Joyner, was probably a subprime mortgage. Ms. Weathersby probably had a lower credit score when she bought the house. Once again, this must be assumed as Mr. Joyner failed to report any description of her credit history.

Mr. Joyer reports more information in another hard-luck story about a Mr. Osgood, whose home is being sold after he obtained a subprime ARM:

"This was Osgood's first attempt at home ownership. He got an adjustable rate mortgage 5 1/2 years ago from First Franklin Financial with a monthly note of $496.

Osgood said he knew the rate would adjust, but he never thought it would double.

"You know they aren't going to tell you that, because then you aren't going to buy," he said."

This is another case of a borrower not reading what he signs as the ARM disclosure spells out how much the rate can adjust during the life of the loan. I am willing to bet that there are two signed forms even though he didn't bother to read them.

It is not surprising that Mr. Joyner made so many errors and omissions in his story as he quoted from non profit groups, an economist, the president of the Mortgage Bankers Association, the Commissioner of the Department of Banking, but no one who could actually explain to him the regulations as he avoided getting the basic facts for this story. It is also no surprise that so many Jacksonians obtained subprime mortgages (and they would have gone to finance companies if subprime lending was not available) since the average credit score is 671, which is 20 points below the national average of 692. http://kingfish1935.blogspot.com/2008/02/average-credit-score-in-misssissippi.html

What was also left out of the story was a fact published in this blog several weeks ago. Mississippi ranks 46th in the nation in terms of foreclosures. Despite the problems in Hinds County, Mississippi is still doing well during the crisis in the mortgage and financial markets compared to the rest of the country. http://kingfish1935.blogspot.com/2008/02/good-news-mississippi-last-in.html

Make no mistake, I feel sorry for these borrowers and by all means we should help them as much as possible if they are willing to work through their problems but it is also important to get the facts straight and add some proper perspective to this story.